California restaurants abandon no-tipping policy under higher minimum wage

One focus of the Fight for 15 movement over the past couple of years has been the question of wait staff employees in the restaurant industry who receive less than the current minimum wage but make up for it in tips. This is, of course, a bad deal for unions if they get involved in that market space because it’s more difficult to ensure they extract the maximum amount of money from the workers’ wages. The theory is that we need to increase the pay of these workers to a “living wage” to make sure they have a better life. But is it really a good deal for the staff and the restaurant owners? Out in California where much higher minimum wages are looming, some business owners tried jumping into the “no tipping” model early to get ahead of the curve, but quickly learned that things weren’t quite so simple as the higher minimum wage advocates made it sound.

In relatively short order, Joe’s Crab Shack has gone back to the old, lower wage tipping model. So too did Thad Vogler, owner of Trou Normand and Bar Agricole in San Francisco. Faced with the prospect of soon having to pay everyone sixteen dollars per hour under city law, he jacked up the wages early and stopped tipping by customers. This resulted in his having to raise prices and deal with the reaction from his workers. NPR interviewed him about this plan and his decision to switch back to the old model of business.

Thad notes that, as in most eateries, the wait staff had to share a portion of their tips with the “back of the house” workers (cooks, dishwashers, etc.) and prior to the change the kitchen staff was making between $13 and $20 per hour and the front of the house staff was making between $25 and $40 an hour. So what happened when they all got “a living wage” for a change?

On what made him decide to switch back to tipping

Attrition. We were losing staff, servers mostly. Kitchen was of course happy and turnover was nonexistent. And senior staff in the front of the house was happy. We were continuing to hire young, new people, train them and then they’d get the set of skills necessary, and they would generally give notice and move to other restaurants in our community who were still on a traditional tip economy.

On how the staff has reacted to the switch back to tipping

Oh, they were delighted. Most of all, my management was very relieved. It had been a tremendous amount of work, and we all remain very much in favor of it, ideologically, and I like many think it may be the way things are going. It just started to feel like an ideologue, insisting on this way of doing it when others in our community that had said they would switch were not switching.

So waiters and waitresses were getting hired, learning the ropes while getting a top brand name on their resume, then quitting to go to work someplace where they could earn tips. Knock me over with a feather! While I’ve written about this here before, this shouldn’t come as a shock to anyone who is familiar with the restaurant business at any level. Even at lower price establishments the same rules seem to hold true. Last year I talked to one of the waitresses about this at a diner where I frequently have breakfast. She works the counter there and earns well below minimum wage. But she has an average of ten customers at a time eating at the counter for a couple hours during the breakfast rush and again at lunch. They don’t tip a lot, but they almost all tip something and she winds up averaging up to $140 per day in gratuities. Add in her low wages from the employer and she estimates that she makes well over twenty dollars per hour. If you put her on a “higher minimum wage” she would be losing money.

The other factor to note in the San Francisco story is the pricing. Since the owner estimated that customers were tipping, on average, 21% of the bill, he raised prices by at least that much. When asked how he would change the policy to make it work if he tried it again he said that he would need to increase prices by 40% so he could keep his staff from walking out. So the workers weren’t happy and the customers were paying one fifth more for their food. And when the city mandated minimum wage goes into effect, diners at Thad’s business can expect the prices to go back up, but this time by twice as much as they did during this recent experiment.

You keep up that Fight for 15, guys. You’re clearly solving all the world’s problems, one failed restaurant at a time.